🧾 Income Taxes: Understanding the Basics

Explainer

Every year, Americans are required to file federal income taxes, and most states also levy income tax. The IRS uses this system to fund government programs.

Key Elements:

• W-2 (wage income), 1099 (freelance/contract), K-1 (business income)
• Deductions (lower taxable income)
• Credits (reduce taxes owed, e.g., Child Tax Credit)

Comparison: Federal vs. State Taxes

• Federal: Applies to all U.S. taxpayers
• State: Varies; some states (like Texas & Florida) have no income tax

Guide: How to File Taxes

Gather income documents (W-2, 1099s, etc.)

Choose standard vs. itemized deduction

File online via tax software or with a professional

Pay taxes owed or receive refund

Trends in 2025

• Expanded e-filing options through IRS Direct File
• Growth of AI-driven tax prep software
• More states offering real-time withholding calculators